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What The Vodafone-Idea Deal Lost After Reliance Jio’s Onslaught

In March, Vodafone India Ltd. and Idea Cellular Ltd. agreed to merge to create India’s largest telecom operator. Less than a year later, a fierce price war triggered by Reliance Jio Infocomm Ltd. threatens to wipe out the intended benefits of the deal.

Where Do They Stand Now?

The revenue of the combined entity declined 12 percent in the year to September. Its earnings before interest, tax and depreciation and amortisation fell 31 percent during the period that coincides with Reliance Jio’s first year of services. The numbers could worsen in the coming quarters after the telecom regulator cut interconnect usage charges—paid for cross-network calls—by more than half to 6 paise a minute starting October.

Will Synergies Drive Savings?

The companies expected to save Rs 14,000 crore annually from the fourth year of completing the deal—60 percent from operational synergies and the rest from lower capital expenditure. A decline in Ebitda means the net benefit from Rs 8,400-crore cost savings will be lower, according to BloombergQuint’s calculations. At best, it will help the merged entity return to the Ebitda run-rate it had at the time of announcing the deal.

A 31 percent fall in the combined Ebitda also increased debt to 6.5 times its operating income compared to the estimated 4.4 times.

Will It Be #1?

At the beginning of the year, Vodafone and Idea Cellular had a combined revenue market share of 44 percent. Nine months later, that’s fallen to 37.8 percent, according to data from the telecom regulator.

The merger and acquisition rules bar a single operator from holding more than half the revenue market share in a telecom circle. The Vodafone-Idea combine still breaches the cap in three regions compared to six in March. The guidelines give an operator a year to bring down its share below 50 percent.

The merger and acquisition rules bar a single operator from holding more than half the revenue market share in a telecom circle. The Vodafone-Idea combine still breaches the cap in three regions compared to six in March. The guidelines give an operator a year to bring down its share below 50 percent.

Emailed queries to Vodafone India and Idea Cellular about the deal and Reliance Jio's impact on the intended benefits remained unanswered.